We are all aware how the PNB scam rattled the nation with its Rs 14000 crore fraud putting the state exchequer at stake under the vicious scheme of the uncle and nephew duo, Nirav Modi and Mehul Choksi.
The entire blow out is still under the lenses of the investigative agencies, CBI and ED who are still following the complex process of ransacking all the fraudulent assets of the two absconding fraudsters and each and every person involved in the illegal transaction of the money abroad into the fictitious accounts of the shell companies Fire star and Gitanjali jewels owned by Modi and Choksi.
According to the Finance Ministry, the PNB has issued as many as 41, 178 Letters of undertaking (LoUs) since 2011, out of which 15,90 were addressed in favor of Nirav Modi and his associates.
Initially what seemed to be just the tip of the iceberg is now a genie out of the bottle, leaving everyone baffled on how such a whopping sum was siphoned off against fake LoUs issued by PNB to the foreign branches of the companies and no one got the air of it.
The PNB has also filed a supplementary complaint with the CBI against Mehul Choksi, his companies and all the senior functionaries for an additional amount of 942.19 crores.
It is evident that the list of scams like PNB is certainly going to project India in the worst position in terms of bad loans which if more than the estimated 46% loans to be written off by the government.
So the amount of capital investment which is estimated at $35 billion for all the PSUs may be inadequate to start lending and forge a fresh growth cycle unless the taxpayers pump more money into it.
According to global investor Goldman Sachs, the Indian economy will witness a slump in growth for the financial year 2019 from the estimated 8% to 7.6 %, a fall out due to some of the major scams like PNB.
But as we are getting into the details of this scam it’s also essential for us to know is what goes behind the scenes. It is the auditors and the Chartered accountants who join the dots and tally the financial details of any transaction.
Today we will look into the nitty-gritty of the financial auditing in case of scams via a chartered accountant. Ms. Sujata Garg who considers herself a Chartered Accountant of the second category.
She thinks in India is a nation of paradoxes where there is a category of 2 % people holding 98% of work and money, while there are 98% people holding 2% of work and money and she belongs to the latter unfortunately who is misunderstood for all the frauds and illegal transactions.
Regarding the recently busted PNB scam, she believes in the banking system there are two kinds of funding facilities available- fund based and non-fund based. Fund based facility is meant for businessmen seeking capital, while the non-fund based facility consists of the LoUs or guarantees that the businessmen avail of for further transaction or transfer of money.
In foreign banks (Indian branches) the rate of interest for loans or transactions is quite less as compared to Indian banks and based in this scheme of things that many businessmen like Nirav Modi stash away their NPAs (Nonperforming assets) or black money by issuing LoUs from nationalized banks.
These foreign branches of Indian banks belonged to the shell companies established by Nirav Modi and Mehul Choksi.
She thinks that the reason that the scam, which took roots in 2011 and ultimately culminated into such a big financial tragedy is due to the easy availability of capital from the banks.
Ms. Garg also acknowledged the fact that it was the 80:20 gold import scheme launched by former Finance Minister P. Chidambaram on 16th May 2014, when the BJP led NDA came to power, that aided in the illegal transaction of Modi and Choksi jewelry business and 5 other jewelers.
The 80:20 scheme was implemented for nominated banks/ agencies/ entities to “rationalize” import of gold in any form to curtail the current account deficit.
It is the government’s abrupt policymaking that the public falls trap, says Ms. Garg without knowing it’s benefits or repercussions on the economy.
She reiterates that it’s the loopholes in the banking system and the inability to update the balance sheets for crores of money sanctioned over7 years against fake LoUs, that has led to the scam of this stature.
The foreign branches of Indian PSUs did not verify if the 14.500 crore money lent over the years was reflected in the PNB accounts, which is the biggest proof that the banking system is flawed.
During the investigations, PNB revealed only Rs 100 crore of contingent liabilities which was considerably less than the fraud amount.
It’s shocking that none of the banks bothered to check the balance sheets of PNB, when such a huge amount was siphoned off, displaying the laxity and lack of intervention in the banks and financial institutions.
Modi’s Firestar international filed for bankruptcy through a New York law firm claiming he is accountable for payment of only the outstanding loan equivalent to $100 million of debts and assets which is against the $1.8 billion revealed in the PNB’s accounts.
The total figure of fraudulent assets under Modi empire is still under scrutiny and could hike up to an extra $204 million.
She believes that our banking system as per RBI norms needs intermittent inspection and tracking of banking data, transactions and swift systems which feature all the local and foreign transactions in a bank.
Ms. Garg didn’t refrain from saying that it’s difficult to say if it was during the UPA or NDA regime that the scam unfolded, as whoever is in power is equally responsible.
Invariably he government in power always wields the policies in its favor and less at public disposal so unfortunately, it’s the taxpayer’s crunch.
Ms. Garg feels that such a big fraud is absolutely impossible without the tacit approval of a big government official. She also feels that there is further need of tax-friendly policies so that both the public and government can work simultaneously to uproot corruption and build a stronger economy.
Please watch the video below to see the opinion of Chartered accountant Sujata Garg on PNB scam and how such it unfolded at such a big scale.